(Yicai) Aug. 22 -- Chinese commercial banks’ net profit growth rate has been slowing down in recent years due to sliding lending rates, narrowing net interest margins and the reduction of service charges, but it is still within a reasonable range, an official at the National Financial Regulatory Administration said yesterday

Chinese commercial banks’ net profit edged up 0.4 percent in the first half from a year earlier to CNY1.3 trillion (USD182.3 billion), Liao Yuanyuan, director of the NFRA’s Statistics and Risk Surveillance Department, said at a press conference. This is a slowdown from the 0.7 percent clip logged in the first quarter.

The average interest rate for newly issued corporate loans by banks dipped 39 basis points in the first seven months from the same period last year and it has plunged 100 basis points from the record high reached in 2021, Liao said.

Meanwhile, net interest income, which accounts for around 80 percent of lenders’ revenue, tumbled 19 bps in the six months ended June 30 to 1.54 percent, which is a more than 50 bps drop from the record high, she said.

Banks have also been reducing their service charges, including processing fees and commissions, every year for five straight years, she added.

The NFRA will guide banks to further refine their management, optimize their asset-liability structure, cultivate new profit growth points and improve profitability, she added.

Financing Whitelist

A real estate financing coordination mechanism was recently rolled out to meet the reasonable financing needs of all types of property developers and projects without discrimination, Liao said. The government is screening real estate projects to form a whitelist of eligible ones which it then forwards to lenders for review based on market principles and risk control processes to determine if they are eligible for financial support.

So far, banks have approved 5,392 whitelisted projects, with a financing amount of nearly CNY1.4 trillion (USD196 billion). This will play a positive role in promoting the on-time completion and delivery of properties, safeguarding the legitimate rights and interests of homebuyers, and stabilize the real estate market.

Realistic Approach

In general, China will take a realistic approach to steadily promote the reform of small and medium-sized financial institutions to alleviate risks, said Xiao Yuanqi, deputy head of the NFRA. It will not adopt a one-size-fits-all strategy but will roll out different policies for different places.

When reforming rural credit unions, provincial governments should take into account the dual goals of promoting development and preventing risks based on different situations, said Dong Ximiao, chief researcher at Merchants Union Consumer Finance.

The focus and order of reform should vary in different places, Dong said. For example, provinces should prioritize risk mitigation and form municipal and provincial rural commercial banks in central, western, and northeastern regions, while focusing on enhancing the competitiveness of legal entities in eastern areas, he said.

In general, small and medium-sized financial institutions have sound operations, with healthy and reasonable operational and regulatory indicators, Xiao said. The capital adequacy ratio of small and medium-sized banks is 13 percent, with a provision coverage ratio reaching 155 percent. The solvency of insurance companies, both comprehensive solvency and core solvency, is above the regulatory benchmark.

Editor: Kim Taylor